Edited version of your private ruling

Authorisation Number: 1012557401477

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Ruling

Subject: GST and supply of meals in a residential college

Question 1

Is the supply of meals by you a GST-free supply for the purposes of section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, where the supply of each meal is made for less than 75% of the consideration that you provided for acquiring each meal supplied.

Relevant facts and circumstances

· You are a residential college.

· You are an income tax exempt charity (ITEC) and a deductible gift recipient (DGR).

· You are also an endorsed charity to access goods and services tax (GST) concessions and are registered for GST.

· You do not charge separate prices for differing levels of accommodation (ie all student residents pay the same semester rate).

· You obtained a private binding ruling from the Commissioner confirming the supply of accommodation was GST-free. However, the Commissioner was not in a position to confirm whether the supply of food and also the supply of residential college courses were GST-free based on the information provided.

· You have relied on the private binding ruling since the date of issue and have apportioned the total fee under the residential license agreement as follows:
- Accommodation GST-free 38.50%
- Food Taxable 40.00%
- Other Taxable 21.50%

· Subsequent to the date of issue of the private binding ruling the Commissioner developed the 'Residential Colleges GST-Tool' (GST-Tool) to assist Colleges to apportion student residential license fees into the three separate end identifiable components.

· The GST-Tool apportions the total fee under the residential license agreement into amounts that relate to the following supplies:
- Accommodation
- Meals
- Tertiary residential college courses

· You reviewed the GST characterisation of the supplies made under the residential license agreement and confirmed the private binding ruling continued to have application.

· You reviewed each of your residential license agreements utilising the GST-Tool.

· The results produced by the GST-Tool confirmed the College does not exceed the 75% threshold rate and can apply the GST-free concession afforded to charitable institutions in relation to the provision of accommodation, in summary:
- The consideration received by the College in relation to the accommodation component of the various residential license agreements is less than 75% of the market value of the Australian Taxation Office (ATO) benchmark.

· The GST-Tool also produced the result that the residential college courses were GST-free. In summary:
- The consideration received by the College in relation to the tertiary residential college courses is less than 50% of the GST-inclusive market value of the supply.

· In the current circumstances, the GST-Tool produces a result that the supply of meals by the College to the students is a taxable supply. This is due to the fact the GST-Tool operates on the presumption that reliance will be made on subparagraph 38-250(1)(b)(ii) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

· However, the supply of meals may still be GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act, if the consideration received by the College for the meals component is less than 75% of the costs incurred to provide the meals.

· You analysed the costs incurred by you in supplying the meals to the students against the proportion of the consideration received by you.

· The analysis concludes that all three (3) components of the residential license fee should be characterised as GST-free.

· You have provided a copy of the Colleges profit & loss statement for the period 1 January 2012 - 31 December 2012. You have determined the cost of supplying meals using the expenses in this profit and loss statement.

· You have utilised the GST-Tool to determine the fees for the various residential license agreements.

· You have determined that you provide xxx meals per student each year. This is calculated by multiplying the number of weeks in the year that you provide meals of 34 weeks by 3 meals per day, for 7 days in a week.

· You have determined that you provide a total of xxx,xxx meals to students each year. This is calculated by multiplying the meals provided per student each year of xxx by the number of students of xxx.

· You also provide meals to x staff members of 1 meal per day by 5 days in a week for 34 weeks. A total of x,xxx meals are provided to staff.

· You have included direct costs in calculating your cost of supply of meals:

· You have included the indirect costs in calculating your cost of supply of meals:

· You have not included any capital costs in your cost of supply of meals calculations.

· You have determined that the cost of supply for each meal provided is $x.xx. This is calculated by taking the total direct and indirect costs of $x,xxx,xxx.xx plus $xxx,xxx.xx and dividing the total by the total number of meals provided in an academic year of.

· You have determined the consideration received per meal.:

· You have determined the cost per meal and compared the cost to the consideration received per meal as a percentage of the cost of supply of each meal to determine if the supply of the meal is GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act :

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - Section 38-250.

Reasons for decision

Commercial activities of charities will generally be taxable or input taxed. However, the non-commercial activities by charities will be GST-free under Sub-division 38-G -'Activities of charities etc' of the GST Act.

As you are the supplier of meals to students in a residential college and you are also a charitable institution and your question relates to the supply of meals to students at your college for less than the consideration you provide for acquiring the meals supplied, subparagraph 38-250(2)(b)(ii) of the GST Act may apply,

Relevantly, subparagraph 38-250(2)(b)(ii) of the GST Act provides that a supply is GST-free if the supplier is an endorsed charity and where the supply is not a supply of accommodation, the supply is for consideration that is less than 75% of the consideration the supplier provided for acquiring the thing supplied.

Subparagraph 38-250(2)(b)(ii) of the GST Act states:

(2) A supply is GST-free if:

(a) the supplier is an *endorsed charity, a *gift-deductible entity or a *government school; and

(b) the supply is for *consideration that:

(i) …

(ii) if the supply is not a supply of accommodation - is less than 75% of the consideration the supplier provided or was liable to provide, for acquiring the thing supplied.

…

*an asterisk denotes a defined term in the GST Act.

As you are an endorsed charity, your supply of meals to students is GST-free if the consideration received for your supply is less than 75% of the consideration you provided for acquiring the meals supplied.

The ATO have published the methodology for applying the cost of supply test - meals supplied in boarding schools, university halls or colleges and other residential education facilities in the Goods and Services Tax Industry Issue: Charities Consultative Committee Non-commercial activities of charities, cost of supply and market value tests (the CCC document) to assist endorsed charities or gift deductible entities in establishing the cost of their supplies under subsection 38-250(2) of the GST Act.

These guidelines are available on our website at ato.gov.au.

Cost of supply guidelines

When calculating the cost of providing something an endorsed charity or a deductible gift recipient should include:

§ all direct costs incurred for example materials and direct labour, and

§ a reasonable apportionment of indirect costs incurred for example, marketing, administration, office expenses, electricity, telephone, insurance.

For supplies of things other than accommodation only those amounts paid or payable may be included in the calculation. This is due to the wording in subparagraph 38-250(2)(b)(ii) of the GST Act which states that it is the consideration the supplier provided or was liable to provide for acquiring the thing supplied.

The following things cannot be included because they do not involve an actual outlay by the supplier:

§ depreciation of assets,

§ imputed costs for things like volunteer labour, donations, and free rent where the organisation has not actually provided any consideration or incurred any real costs.

Option 1

Where a supplier makes different classes of supplies, in determining the cost of making a supply under subparagraph 38-250(2)(b)(ii) of the GST Act the supplier should:

§ estimate the projected costs of making all supplies,

§ determine the total number of supplies being made, and

§ determine the cost of making a supply by dividing the projected costs of the supplies by the total number of supplies being made.

Option 2

Alternatively for each class of supplies, the supplier can also determine the cost of making a supply under subparagraph 38-250(2)(b)(ii) of the GST Act by:

§ estimating the projected costs of making supplies of that class,

§ determining the total number of supplies being made for that class,

§ determining the cost of making a supply by dividing the projected costs of the supplies by the total number of supplies being made for that class.

For guidance, the CCC document at Section E provides examples of using the above methodologies for organisations in the cultural and performing arts sector making supplies of tickets to concerts and performances.

Section E also explains that an endorsed charitable institution or a deductible gift recipient making different types or classes of supplies can choose which of the above two options to use in determining the cost of making a supply.

Section F provides the steps to follow in applying the cost of supply test for meals supplied in boarding schools, university residential halls or colleges, and other residential educational facilities.

To correctly calculate whether a supply is GST-free or taxable, the supplier must go through the following steps.

Work out the cost of making a supply

Estimate the projected costs of providing meals in a period (such as a term, a semester, an academic year or a school year) for which the supplier charges a student-resident a single fee.

Estimate the total number of all meals to be provided in the period. The total number of meals provided includes:

§ meals provided to student-residents

§ free meals provided to supervising staff and guests

§ casual meals provided to other paying staff and students, and

§ meals provided (ordered) but not consumed, for example a student-resident elects not to eat a meal.

Divide the projected costs for the period by the estimated total number of meals to be provided for the period to obtain the cost of supplying a meal.

We accept that when applying the cost of supply test, a supplier can include all direct costs (for example, food and kitchen staff wages) and a reasonable apportionment of indirect costs (for example, electricity and insurance). However, costs used must be real costs. Things like voluntary labour, donations, other imputed costs and depreciation can not be included. All projected costs must be realistic and must be aligned with other costing conducted when the supplier determines meal prices and the costs of providing a meal.

Your application of the methodology to determine cost of supply

You have applied the methodology outlined in the CCC document to determine your cost of supply of meals to students based on actual costs incurred by you in the 2012 year. You have included in your calculations of the cost of supply of meals all direct costs such as catering costs, kitchen expenses, and all indirect costs.

You have determined the cost per meal and compared the cost to the consideration received per meal as a percentage of the cost of supply of each meal to determine if the supply of the meal is GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act :

You advise that based on your calculations, the consideration received by you for all the meals supplied under the various residential license agreements is less than 75% of the consideration you provided in acquiring the meals supplied and would therefore be GST-free.

Where you have acted in accordance with the methodology and guidelines outlined in the CCC document in determining your cost of supply of meals to students, we accept that the supply is a supply for nominal consideration and is GST-free.

Based on the facts provided, the Commissioner accepts that the supply of meals to students under the various residential license agreements is GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act. This is based on the proviso that all the calculations under your methodology are correct.

Records

Charities must keep and maintain records that adequately document the process and information collected in working out the relevant cost of supply which the consideration of the supplies the charity makes is to be compared to.

For example, the cost of supply established and the methods used may be documented or minuted in the charity's books of account. This information should be captured in a way that will allow cross-referencing to accounting statements. It should also correspond to what is recorded on the charity's activity statements.

While you do not need to seek formal approval from the ATO where you conclude that the supplies of meals to students under the various license agreements (or other supplies or services) are GST-free, you must use the above guidelines to calculate the market value or cost of supply to make and support your decision.

Review of cost of supply

Charities should monitor the costs incurred in making the supply to ensure that they will respond promptly to any material changes in those costs in calculating their cost of supply.

Changes in conditions include, amongst other things:

§ suppliers entering or leaving the market

§ changes in quality of the supplies as a result of different consumers' expectation

§ changes in input costs, and

§ changes in prices charged.

Input costs include real costs such as direct and indirect costs incurred.

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